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Calculate FV of deposits, annuities, amortize payments, rate of return, EVA

1- You want to go to grad school 3 years from now, and you can save $5,000 per year, beginning one year from today. You plan to deposit the funds in a mutual fund which you expect to return 9% per year. Under these conditions, how much will you have just after you make the 3rd deposit, 3 years from now?

2- You want to go to grad school 3 years from now, and you can save $5,000 per year, beginning immediately. You plan to deposit the funds in a mutual fund which you expect to return 9% per year. Under these conditions, how much will you have just after you make the 3rd deposit, 3 years from now?

3- Your father has $500,000 and wants to retire. He expects to live for another 20 years, and he also expects to earn 8% on his invested funds. How much could he withdraw at the beginning of each of the next 20 years and end up with zero in the account?

4- Your father has $500,000 invested at 8%, and he now wants to retire. He wants to withdraw $50,000 at the beginning of each year, beginning immediately. How many years will it take to exhaust his funds, i.e., run the account down to zero?

5- Assume that you own an annuity that will pay you $10,000 per year for 10 years, with the first payment being made today. Your girlfriend's father offers to give you $45,000 for the annuity. If you sell it, what rate of return would your girlfriend's father earn on his investment?

6- What's the future value of $2,000 after 3 years if the appropriate interest rate is 8%, compounded semiannually?

7- Laiho Industries reported the following information in its annual report:

Net income  $7.0 million.

NOPAT  $60 million.

EBITDA  $120 million.

Net profit margin  5.0%.

Laiho has a depreciation expense, but no amortization expense. Laiho has $300 million in operating capital, its after-tax cost of capital is 10%, and the firm's tax rate is 40%.
What is Laiho's depreciation expense?
What is Laiho's interest expense?
What are Laiho's sales?
What is Laiho's EVA?

8- Last year Oliver Inc had a total assets turnover of 1.60 and an equity multiplier of 1.85. Its sales were $200,000 and its net income was $10,000. The CFO believes that the company could have operated more efficiently, lowered its costs, and increased its net income by $5,000 without changing its sales, assets, or capital structure. Had it cut costs and increased its net income in this amount, by how much would the ROE have changed?

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Solution Preview

1- You want to go to grad school 3 years from now, and you can save $5,000 per year, beginning one year from today. You plan to deposit the funds in a mutual fund which you expect to return 9% per year. Under these conditions, how much will you have just after you make the 3rd deposit, 3 years from now?
FV =5000*(1+9%)^2+5000*(1+9%)+5000=$16390.5

2- You want to go to grad school 3 years from now, and you can save $5,000 per year, beginning immediately. You plan to deposit the funds in a mutual fund which you expect to return 9% per year. Under these conditions, how much will you have just after you make the 3rd deposit, 3 years from now?
FV =5000*(1+9%)^3+5000*(1+9%)^2+5000*(1+9%)=$17865.65

3- Your father has $500,000 and wants to retire. He expects to live for another 20 years, and he also expects to earn 8% on his invested funds. How much could he withdraw at the beginning of each of the next 20 years and end up with zero in the account?
PV of annuity = 500000
n=20 years
r=8%
Calculate C.
Note this is a case of annuity due - I missed this ...

Solution Summary

The expert calculates FV of deposits, annuities and amortize payments.

$2.19